"In short, the Complaint lacks merit and fails to articulate grounds for any relief," said the USPS in its 26-page response. "[GameFly] seems to believe that problems of its own making can somehow be solved by the Postal Service when, in fact, they cannot--at least not without incurring costs that would be a disservice to all other mailers." GameFly, the parent company of Shacknews, filed a formal complaint against the USPS in late April. It alleges that the USPS "adopted a practice of manually culling out the DVD mailers" of Netflix and soon-to-be-rival Blockbuster, providing the "high-volume shippers" with "special processing" that reduces the amount of broken discs and supplies a "substantial cost advantage" in mailing-related expenses.

The Postal Service strongly denied that it is providing preferential treatment, and claims that while it once manually sorted DVD mailers without charging a fee, its policy is now to sort all "outbound" (from mailer to customer) discs using automated machines.

"An [Office of Inspector General] report did conclude, early in FY 2008, that the Postal Service was providing manual handling without assessing a nonautomation surcharge," says the USPS. "The Postal Service built on that experience such that today letter size DVD mailpieces consistently run on letter automation equipment."

The USPS adds that while "manual culling of DVDs being returned from customers may occur in local mail...motivated by an interest in getting all mail processed during the available window...outbound pieces are consistently processed on automation."

Though GameFly's complaint states that the company wants manual processing "comparable" to that of the movie rental services, the USPS claims that GameFly has in fact "sought to reduce the manual processing of its mail" in order to make use of automated "confirm scans," which allow GameFly to track its discs.

The Postal Service also claims that GameFly's unique packaging and use of different mailing rates are the root of its differential treatment.

"In fact, other DVD mailers use single-ounce letter rates, with essentially all outbound pieces handled on letter automation, and most inbound pieces handled the same," wrote the USPS in its response. "Gamefly instead uses flats rates, and two-ounce mail pieces. The differences in mail processing operations are substantial."

In its complaint, GameFly says that it tested a variety of different mailers to prevent disc breakage in the automated mailing machines. The USPS claims that it has repeatedly told GameFly its envelopes have a tendency to fold, making them too small to be automatically sorted into the machines GameFly believes are gentler on DVDs.

"Despite years of Gamefly having gotten this message from postal employees, inbound Gamefly mail is not extracted as a flat automatically from the DPRC (the first piece of equipment most inbound collection mail encounters) because it is not tall enough."

Continues the response: "Gamefly could get the inbound flats automation handling it wants by changing its mailpiece, and Gamefly in fact receives at least similar handling as other DVD mailers, after allowing for processing stream distinctions."

The USPS further claims that the Postal Regulatory Commission has no jurisdiction to rule on a matter concerning violation of postal code 404(b), which deals specifically with guaranteeing "reasonable and equitable" postal rates and fees.

GameFly had no comment on the rebuttal when contacted. The Postal Regulatory Commission has until July 13 to answer the complaint.